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Covid-19: Some tips for landlords to manage rent arrears

Thursday, April 02, 2020

It should come as no surprise to anyone that over the last two weeks, most of the inquiries we have received from landlords concern rent. More specifically,
arrears. Our responses to each of these inquiries largely reflect the following:

1. Get yourself sorted

It has been made abundantlyclear to APIA members that in times like this, cash-flow is king. Take a good look at your cash position right now. What are the incomings? What are your
outgoings? Do you qualify for any government assistance packages?
Has your employer given you any indication around the security of your job? Are you aware of any clients who may not be able to pay your bill in the
short to mid-term?

Stress-test your portfolio right now. Look at how your cash position will change if one or more of your tenants default. What would that look like if some
or all of your tenants get a slight reduction or deferral? How much pain can you withstand? Can you deleverage by selling some properties
at the end of L4. What would that look like? Have you spoken to your bank or got some good financial planning in place to weather the storm?

Until you know exactly what your capacity is, you are not in a position to help anyone else.

2. Check-in with your tenants

If you haven't already, you should. In the age of social media that conveniently diminishes facts while celebrating manufactured outrage, it is easy to
buy into the landlord vs tenant rhetoric. And you would be shortsighted to do so if not downright wrong. Long-time investors will be the first to remind
you of the symbiotic relationship that exists between a landlord and a tenant. Like it or not, you and your tenants are going to be weathering this
storm together.

Get the relationship on the right track by reaching out today to check on their wellbeing. Consider this: There is this acquaintance you met some months
ago at an APIA mixer, you exchanged numbers but neither of you ever followed up. You know nothing about this person apart from you shared a drink with
him. If in the midst of all of this L4 madness, you suddenly get a text saying 'Hey, I paid for your drink that time we met and you've never paid me
back. I like $10 please.' How would you feel about that? If say this person actually checked-in with you early in the lockdown and later on sent you
that text to ask for money anyway, how differently would you feel about that? A how-are-you message would not only mean a lot for your tenant
to receive, but it could also translate to longterm loyalty after COVID-19.

If you are thinking to yourself, Gees APIA, I didn't come here to be lectured about how to be a decent human being 🙄, then we only have one word
for you - karma.

3. Front-foot tough conversations

The reality is that some of you reading this will be suffering financially to the same if not a greater extent than your tenants. On top of that, all landlords
right now have to wear a greater risk of tenants defaulting because of COVID-19. Have a think about what you and your tenants can do now to prime each
other to expect to cope with your respective challenges.

For example, many tenants are not aware that a mortgage holiday will end up costing landlords more in interest longterm. When Jacinda said
rent freeze some tenants heard you don't have to pay rent. You could also be labouring under certain misapprehensions about
your tenants. Maybe they have lost their jobs. Maybe they are on half-pay. You just don't know. Work out a way now to broach these subjects to them
respectfully and invite them to be open and honest with you about their situation is the first step to ensure that arrears do not snowball into something
unmanageable.

That said, we are entirely uncomfortable with Dr Wood's directive that tenants do not have to inform landlords if they test positive for COVID-19. We will
be escalating this to the NZPIF to support its advocacy efforts.

We don't know how COVID-19 is going to unfold and what havoc it is going to wreck on the economy when all is said and done. What we do know, at the time
of this piece, is that many of us are still working from home and on most- if not full-pay.

In appropriate circumstances, consider working with your tenants towards a plan for temporary rent reduction/rent holiday/rent deferral. We had previously
advised, during L2, to document the arrangement by way of a variation to the tenancy agreement. That is no longer appropriate during L4 seeing that
it would be impossible to have both the tenant and landlord signing the variation. Instead, we recommend the following:

That you have an open and honest discussion with your tenant about your respective positions. That you make clear that you are not seeking to profiteer
from the situation but rather want to work out a fair and equitable arrangement to suit both parties.

That you keep the arrangement short (such as two weeks or one month) to give yourself and your tenant the flexibility to review your positions throughout
this unprecedented crisis.

6. Be kind and keep your eyes wide open

Kristine King made a good point at this week's Hangout session L4 implications for landlords and tenants: tenants
are not going out and tapping into their discretionary money. They can't. None of us can. So whey they come to you to say that they are struggling
to pay rent, chances are, they are really struggling. Sure, there will always be a small number of people who are trying it on and taking advantage
of the situation. But we think they are the exception rather than the norm. As long as you are thoughtful, savvy and keep your eyes wide open, we think
you will have enough in you to make the right judgment call. Earlier on during this crisis, we received a rather tasteless media inquiry (once again trying to make mincemeat out of landlords' reputation). In response, we said, amongst
other things, that we are confident in the humanity and business acumen of our members to act appropriately. We were, and we still are.

Good luck to each and every one of you. Stay safe. Have faith. And stay in touch!

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